Europe's Economic Crisis: What You Need to Know

Crushed by debt and distressed banks, countries like Greece, Spain, and Ireland face ongoing recessions, while Germany and the Netherlands along with members of the International Monetary Fund , push for austerity measures.

There's more than enough reason for concern. The economy of the European Union, which holds the 17 nations that use the euro currency and 10 others, is a larger economic bloc than the United States or China.

To help clarify the situation, here's a look at what's happening now, with updates as they happen, and a look at the major players.

Week of June 18:

Parties committed to Greece's bailout secured a majority on Sunday while leftists who had vied for first place conceded defeat in an election that could keep the debt-laden country in the euro zone.

The conservative New Democracy party held a 2.9 point lead after 97 percent of the ballots were counted. New Democracy had 29.7 percent of the vote, while the leftist Syriza party was running second with 26.9 percent.

How this plays out is still to be determined. Despite the election results, at least on analyst told CNBC that Greece could still leave the euro.

Any hopes Italy and Spain may have had that the Greek election result would ease pressure on their own debt crises were dashed early on Monday when financial markets reacted as if nothing had changed. The cost of borrowing rose for both countries, the two big euro zone economies under fire for poor finances, widening the gap between what they have to pay and what Germany pays.

The last published opinion polls showed the conservative New Democracy party, which backs the 130 billion euro ($160 billion) bailout that is keeping Greece afloat, running neck and neck with the leftist Syriza party, which wants to cancel the rescue deal. (see more on Greece below).

Greeks have been withdrawing cash out of banks to the tune of some $1 billion so far, and stocking up with food ahead of a cliffhanger election on Sunday that many fear will result in the country being forced out of the euro.

Spain's credit rating took another hit on Wednesday. It was downgraded by rating agency Egan-Jones "CCC+" from "B." This is mainly due to Spain getting a bailout for its banks indicating a need for more money to run the country. The downgrade Spain's borrowing costs will go up.

Euro zone finance ministers agreed on Saturday (June 9) to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks; Madrid said it would specify precisely how much it needs once independent audits report in just over a week.

Italy is also back in the headlines (see below for more on Italy) as a result of the loan to Spain, over fears the Spanish bailout won't stop the crisis from hitting Italy's already staggering economy.

Because Italy does not have enough economic growth to generate money, the government will probably have to borrow it at high interest rates, adding to an already heavy debt load.

This is important because Germany has the strongest economy in Europe, and the fourth largest in the world, and plays a leading role in the crisis under Chancellor Angela Merkel—whom many consider the de facto leader of the European Union.

Michael Gottschalk | AFP | Getty Images

German Chancellor Angela Merkel

Germany's leadership is said to be 'vital to salvaging the euro as a single currency and stopping a debt crisis that's rattled markets and threatened the global economy.'

Others say Germany has gone way too far in imposing austerity measures on countries like Greece and Ireland.

In return, Greece agreed to shrink its deficit with a series of spending cuts and tax hikes. This was the second bailout for Greece in as many years.

But Greece suffers from high unemploymentand an economic slowdown—Greece’s economy is expected to shrink by 6 percent this year—and many of its political leaders as well as the population say the austerity measures are too severe.

That created a crisis for Spanish banks holding mortgages and loans it gave out to developers. In late May, Spain's fourth-largest bank, Bankia, announced that it needed $23.5 billion in aid. Spain ended up nationalizing Bankia.

Spain's economy has slowed, its debt has increased, and unemployment has soared to 25 percent.

Ireland was the first European country to go into recession in 2008. Like Spain, this was mainly due to the bursting of a housing bubble.

The government then had to back up its own banks with funds as well as foreign banks that had major investments in the country.

The government took control of the Anglo-Irish Bank in December 2008. Downgrades of Ireland's credit ratings in 2009 and 2010 made borrowing more expensive.

In late 2011, Ireland received $113 billion in bailout funds from the EU and International Monetary Fund. But the trade-off was severe austerity measures—cuts in social spending and tax increases—that has kept the country in recession.

Italy's debt problem—it does have a high debt ratio to GDP—isn't related directly to any kind of housing bubble, banking crisis or wild government spending but more toward the fact that the country's economy is at a standstill.

Italy's is the third-largest economy in the European Union, but its GDP growth has slowed dramatically since the early 2000s.

It plunged below zero during the global recession of 2008 and has barely recovered. Unemployment remains high—at 10.2 percent in April of 2012.

As a result, investors are concerned about the country's ability going forward to cover its debt interest payments without incurring ever-higher levels of debt.

Those fears, paired with jitteriness over euro zone neighbors like Greece, have forced Italy to pay more and more for credit.

Italy's government led by prime minister Mario Monti has promised a new economic policy of balancing the budget, promoting growth, and cutting down on social disparities. That includes overhauling Italy's pension system, fighting tax evasion and cracking down on organized crime.

Portugal:

Like Spain and Ireland, Portugal has more private debt than public debt. But like Italy, it's economy has been shrinking and that's been the main cause of concern. The Portuguese government projected that the country’s economy would contract by 3.3 percent in 2012. It has an unemployment rate of 13 percent.

Portugal's public debt was downgraded in July 2011. But much of the borrowing by Portuguese companies has been financed by Spanish banks.

That creates the possibility—and increased worries—of a domino effect, where a financial squeeze in Portugal leads to a bigger crunch in the Spanish banking sector.

In April 2011, Portugal got a financial bailout from the European Union worth $115 billion that imposed economic cutbacks to hold down its debt.

Other Countries:

Great Britain and France have both gone through their share of economic woes but are not considered in any immediate danger of defaulting on loans.

France's credit rating was downgraded in January of 2012 and faces higher borrowing costs as a result. It will also affect the euro zone bail-out fund, which is at the heart of efforts to ease fears about the currency bloc, as France is partly responsible for underwriting it.